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Why petrol and diesel prices can touch an all-time high again

The US sanctions on Iran will have direct impact on petrol and diesel prices in India, which imports around 80 per cent of its oil requirement. Iran is the third largest exporter of crude oil to India after Iraq and Saudi Arabia.

twitter-logo BusinessToday.In        Last Updated: September 3, 2018  | 11:12 IST
Why petrol and diesel prices can touch an all-time high again

After touching all-time highs in the recent past, petrol and diesel prices can see a further surge as the country braces for a reduction in oil import from Iran. The US sanctions on Iran will have direct impact on petrol and diesel prices in India, which imports around 80 per cent of its oil requirement. Iran is the third largest exporter of crude oil to India after Iraq and Saudi Arabia.

Petrol touched an all-time high of Rs 86.24 in Mumbai in May, while diesel was at Rs 72.48. During the period, the rates were higher than usual in other main cities too, including Delhi, Bengaluru and Kolkata. The prices have dropped a bit since then in alignment to the global crude oil rates. On Thursday, petrol and diesel were priced at Rs 85 and Rs 73.36 in Mumbai. But, this may not last long.

Blame it on the US!

As the US sanctions against the Gulf country comes into effect on November 4, a supply shortage could spike the crude oil price to as high as $100 a barrel, according to a Bank of America Merrill Lynch report published in May. It's obvious the petrol and diesel prices in India will rise too if this happens.

And it's not just the consumers who will take the beating. A weak rupee coupled with cut in crude oil import and strong OPEC stance on oil production could spell trouble for the Indian oil refiners too. They are hoping to secure a waiver from the US.

The US had assured that it would increase the oil export to India from 8 million barrels in 2017 to over 15 million barrels a month from July 2018. However, import cost could still hurt as Iran offers several perks -- like free shipping and relaxed credit norms -- to India.

...but the Saudis are responsible too

The US sanctions on Iran is not the only reason for India to be worried about a possible spike in petrol and diesel prices. Saudi Arabia is playing its own game that can have an equally damaging effect on the fuel prices.

The world's second largest oil producer, has started cutting production just a month after agreeing to increase the output. In July, it cut its oil production by an average of 200,000 barrels per day - a move that is likely to create oil shortage in global market. Earlier, France-based BNP Paribas had said that because of the US sanctions on Iran, oil production from the OPEC would come down from an average of 32.1 million barrels per day in 2018 to 31.7 million in 2019.

In its monthly report, OPEC said that the group's total output in last month averaged 32.32 million barrels a day - up 41,000 barrels a day from June.

The increase in output was a result of oil producing countries agreeing to lift the cap on production. The prices of crude had fallen by more than half due to excessive supply and booming US shale production. The US, China and India had urged OPEC countries to increase the supply to prevent an oil deficit that could undermine global economic growth.

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